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District Court 23 January 2009

Hayward v Timilty

[2009] NSWDC 54

Fraud & dishonesty
BUILDING & CONSTRUCTION HOME BUILDING ACT INTERPRETATION ENFORCEABILITY VALIDITY OF CONTRACT COSTS PLUS CONTRACT

Citation: Hayward v Timilty [2009] NSWDC 54
Court: District Court of New South Wales
Date: 23 January 2009
Judge(s): Williams DCJ

Background

The plaintiff homeowners engaged a builder and his company to carry out substantial renovations to their residential property in 2004. The parties signed a Housing Industry Association standard-form costs plus contract, under which the builder would be paid his actual costs plus a 10% margin. The contract incorporated a letter from the builder dated February 2004, which described a "budget estimate" for the works.

The builder's costs significantly exceeded that estimate, and the homeowners ultimately locked him off the site. The homeowners had paid approximately $424,000 of a total claimed by the builder of around $518,000.

The homeowners brought proceedings alleging the builder had made 17 fraudulent or misleading pre-contractual representations that induced them to enter the contract, and that the contract was void from the outset. The builder cross-claimed for the unpaid balance of his invoices.

  • Whether the builder's pre-contractual representations were fraudulent, false or misleading, rendering the contract void or voidable
  • Whether the contract was in truth a fixed price contract rather than a costs plus contract, despite what the signed document said
  • Whether the February letter constituted a "quote" (binding price) or a "budget estimate" (non-binding indication)
  • Whether, if the contract was unenforceable under the Home Building Act 1989, the builder could nevertheless recover the value of his work by way of quantum meruit (restitution for work done)
  • Whether the builder was entitled to reinstate a 10% margin on invoices where he had previously agreed to reduce it to 5%

Decision

The District Court rejected the homeowners' claim that the contract was induced by fraud or that the builder's representations were false and misleading. The court found that the homeowners were aware they were entering a costs plus contract, that Mr Hayward had himself expressed concern about its open-ended nature before signing, and that the February letter was plainly described as a "budget estimate" rather than a "quote" or fixed price.

The court distinguished between a "quote" and an "estimate," finding that the February letter did not amount to a binding commitment to complete the works for a fixed sum. The homeowners' own conduct during the project, including making payments beyond the estimate without protest and not submitting certain additional costs to the builder as they would have under a fixed price arrangement, was consistent with their understanding that they were bound by a costs plus contract.

On the Home Building Act question, the court found that the written contract was valid and enforceable. However, the court noted that even if the contract had been unenforceable under that Act, the builder would have been entitled to recover the same amounts by way of quantum meruit, since no expert or party had suggested the charges for labour and materials were above reasonable market rates.

The court held the builder was bound by his earlier agreement to reduce his margin from 10% to 5% on invoices from invoice 2267 onwards, and could not retrospectively reinstate the higher rate because those invoices remained unpaid. Subject to adjustments from the Scott Schedules (which addressed specific defects and disputed items), the builder succeeded on his cross-claim for the unpaid balance.

Orders Made

• Verdict for plaintiff on the plaintiff's claim against the builder to the extent of any adjustment needed to be made by the Scott Schedules
• Verdict for the builder on the builder's cross-claim against the plaintiff, subject to the schedules and the matters discussed in paragraph 157
• The builder remains bound by the originally accepted offer to reduce invoices 2267 and thereafter by 5% (not reinstating to 10%)
• Parties to bring in short minutes of orders within 14 days after reconciling the judgment with amounts awarded in Scott Schedule 1 and any agreed matters in Scott Schedule 2
• If parties cannot agree on any item, the court will resolve those matters in chambers
• Costs to follow the event, or if contested, to be heard on 6 March 2009

The judgment directed the parties to bring in short minutes of orders within 14 days, after reconciling the judgment with the amounts determined in the Scott Schedules. The court noted that costs would follow the event, with any argument on costs to be heard on 6 March 2009.

Key Takeaways

  • The District Court confirmed that the label "budget estimate" in a pre-contractual letter carries materially different weight from a "quote": an estimate does not constitute a binding commitment to complete works for a fixed price.
  • A homeowner's awareness of the open-ended nature of a costs plus contract before signing, and their subsequent conduct during the project, can be highly relevant to defeating later claims that the contract was procured by fraud or misrepresentation.
  • Where a building contract is alleged to be unenforceable under the Home Building Act 1989, a court may nonetheless allow recovery of the same amounts by way of quantum meruit, provided the charges for labour and materials were not shown to exceed reasonable market rates.
  • A builder who agrees during the course of works to reduce his contractual margin remains bound by that agreement, even if invoices at the reduced rate are left unpaid.
  • In dismissing the fraud and misleading conduct claims, the court applied established principles distinguishing actionable misrepresentation from a pre-contractual estimate that both parties understood was not a guaranteed ceiling on cost.

Legislation and Cases Referenced

Legislation
- Home Building Act 1989 (NSW)
- Trade Practices Act 1974 (Cth)
- Fair Trading Act 1987 (NSW)
- Contracts Review Act 1980 (NSW)
- Evidence Act (NSW)

Cases
- Parkdale Custom Built Furniture Pty Ltd v Paxu Pty Ltd (1982) 149 CLR 191
- Palmer v Dolman [2005] NSWCA 361
- Pavey and Matthews Pty Ltd v Paul (1986) 162 CLR 221
- Coshott v Fewings Joinery Pty Ltd [1996] NSWCA 122
- Trimis v Mina [1999] NSWCA 140
- Update Constructions Pty Ltd v Rozelle Child Care Centre (1990) 20 NSWLR 251
- Yorke v Lucas (1985) 158 CLR 661
- Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
- Winterton Constructions Pty Ltd v Hambros Australia Pty Ltd (1992) 39 FCR 97
- Kane Constructions Pty Ltd v Sopov [2005] VSC 37
- Gray (Constructions) Pty Ltd v Hogan [2000] NSWCA 26
- Sunvara Pty Ltd v Williams [2001] NSWSC 433
- McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2